GST Refund on Export of Goods: Decoding Adjusted Total Turnover Under Rule 89(4) of CGST Rules, 2017
Overview
Among the various procedural and computational challenges that arise in GST refund proceedings, one issue that surfaces repeatedly — both at the assessee level and within the department — is the correct determination of "Adjusted Total Turnover" for the purpose of calculating refund of unutilized Input Tax Credit (ITC) on zero-rated supplies, particularly exports of goods.
The matter has gained renewed attention following instances where GST authorities have issued notices to assessees questioning the values adopted in refund applications filed in connection with export of goods. This persistent confusion underscores the need for a clear and structured understanding of the applicable statutory framework, subsequent amendments, and the departmental clarifications issued in this regard.
Statutory Framework: Rule 89(4) of the CGST Rules, 2017
The mechanism for computing refund of unutilized ITC in respect of zero-rated supplies is set out under Rule 89(4) of the CGST Rules, 2017. The refund formula prescribed under this provision involves two critical components — the numerator, which represents the turnover of zero-rated supply, and the denominator, which represents the Adjusted Total Turnover.
Definition of Adjusted Total Turnover
As per Explanation (4)(E) to Rule 89 of the CGST Rules, 2017, "Adjusted Total Turnover" is defined to mean the aggregate of the following:
- Turnover in a State or Union Territory, excluding the turnover of services; and
- Turnover of zero-rated supply of services and non-zero-rated supply of services
while simultaneously excluding the value of exempt supplies (other than zero-rated supplies) during the relevant period.
Important Note: A precise understanding of what constitutes each component of this definition is essential, since any inconsistency in the values adopted directly impacts the refund amount computed.
Key Amendment: Valuation of Exported Goods
Notification No. 14/2022 – Central Tax dated 05.07.2022
A significant amendment was introduced through Notification No. 14/2022 – Central Tax dated 05.07.2022, which addressed a practical concern regarding the value to be adopted for goods exported out of India in the context of refund computation.
As per this amendment, the value of goods exported out of India shall be determined as:
- The FOB (Free on Board) value as declared in the Shipping Bill or Bill of Export; or
- The value declared in the tax invoice or bill of supply;
whichever is lower.